Euro hits new high against dollar

By MATT MOORE
FRANKFURT, Germany

The euro crept steadily higher against the dollar, reaching a new record and then continuing its climb in morning European trading on Monday, as markets looked for signals from the U.S. Federal Reserve about a likely rate cut this week.

The 13-nation euro opened at $1.4428, besting its previous high of $1.4393 on Friday in New York and then proceeded to climb to $1.4438 in midmorning trading, before falling back to $1.4430 -- well above the $1.4385 it bought in late New York trading on Friday.

The euro has been climbing steadily against the euro all year, soaring to new highs almost weekly since August on the back of market fears over the U.S. economy's health because of the subprime credit crisis and increasingly disappointing economic reports.

But the euro's rise, which makes goods from the U.S. much cheaper to buy and shopping for U.S.-bound tourists ideal, can hurt exports from countries that use the euro, particularly Germany and France.

Earlier this month, a survey looking at German investor confidence showed strong concern about exports. The strength of the euro risks making European exports less competitive.
The dollar was also hampered over the weekend as prices for oil surged breached $93 and gold futures hit their highest price since January 1980, $780 per ounce.

That, coupled with the Fed's meeting on Wednesday and market expectations that it may cut interest rates from 4.75 percent, has driven the dollar lower against most major currencies, including the British pound and the Japanese yen.

In trading Monday, one British pound bought $2.0566 compared with $2.0521 on Friday while the dollar was down against the yen, dipping to 114.19 yen from 114.22 yen on Friday.

"Following a series of hawkish speeches by Fed officials during the last week and disappointing housing numbers, we are convinced that the Fed is inclined to cut rates again," HVB/UniCredit economists Harm Bandholz and Davide Stroppa wrote in an investment note on Monday, adding that they expect a rate cut of a quarter of a percent.

Although lower interest rates can jump-start the economy, they can weaken a currency as investors transfer funds to countries where their deposits and fixed-income investments bring higher returns. Higher rates can boost a currency.

The Associated Press October 29, 2007, 6:20AM ET, BusinessWeek